Wednesday, August 8, 2007

Realtors' Dilemma

I’ve written a couple times on BloodhoundBlog about the need for the real estate industry to divorce the buyer agent commission from the listing agent commission. With the seller still in control of what both agents earn, but the buyer bringing the money to the table, we’re living under the vestige of sub-agency, where everyone in effect is working for the seller. It’s otherwise codified in both Oregon Statute and the Code of Ethics – we owe fiduciary duty to whomever we represent, buyer or seller – but I learned long ago that, with market forces in play, saying isn’t always doing.

Case in point: We had an office discussion yesterday that began with how best to market listings when inventories are fifty percent higher than a year ago. Even with all the right ingredients – right price, top condition, good staging, easy access – given all the choices buyers have it’s sometimes difficult to get showings. What to do?

One suggestion: Raise the Buyer Agent commission. From, say, the average 2.7% to 4%. Considerably cheaper for the seller than lowering the price another $20k.

But, wait. That runs counter to statute and code. As a buyer’s agent I’m bound in all cases to consider my buyer’s interests ahead of my own. A home that’s not right at 2.5% doesn’t suddenly become more attractive at 4%. Could anything like that actually work?

Yes. Sadly. It works. And we’re seeing it used as a tactic more and more often.

It’s comforting to know that everyone in the room was as passionate as I: Not only has the buyer commission never entered into a decision on what to show or not show a buyer, but the suggestion that we’d be thus encouraged is a rank insult. Most felt that any buyer agent bonus needs to be disclosed to the buyer, and if possible manipulated so that it becomes in his or her interest.

Then the conversation turned to the dilemma: As a listing agent my fiduciary duty is to the seller. If more traffic can be generated by bribing my fellow agents, is suggesting that to the seller the right thing to do? Does the duty to my seller trump the cynical feeding of the venal realtor stereotype?

I honestly don’t have an answer. I have a fabulous listing in Lake Oswego - where there’s about an eleven month inventory of homes in the $500k and up range - that would be a perfect candidate for a trial … but neither I nor the sellers are quite ready for that. Much better, I think, to hold the commission where it is and try to find incentives to put in the buyer’s pocket.

In the meantime, I’ll continue to write about divorcing commissions.

6 comments:

Greg Swann said...

There's no easy way around this problem, but the thoughtful attention you bring to it at least serves to make others aware of the conflict. My hat is off to you.

Homes In Oregon said...

I see this problem down here in Eugene as well. People offering 3.5% to buyers to make it more enticing. That is great that it is enticing but what about ethics? It does seem like a conflict of interest. Is this a better house for you because it pays me more than the house next door? I'm glad I just do the financing...hha

Will Bateson, Realtor said...

While you wouldn't push higher commissioned homes on your clients (neither would I), A LOT of Realtors do. I have a listing that has sat for 6 months in spite of numerous price drops (offering 3%). Sellers agreed last week to increase commission to selling Realtor to 4%, and suddenly we're getting showings. Coincidence? I don't think so.
Realtors are struggling right now, and many will try to make up for decrease in sales by making more money on the homes they do sell. While I don't condone this, I will use it to my seller's advantage when I can.

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james wilkins said...

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